Threat Of Kicker Brings Budget Worries

Oregon’s economy isn’t exactly booming, but it is improving, and that could lead to about $300 million in tax rebates to individual taxpayers if revenues exceed 2 percent above official state projections in the 2013-15 biennium. That might sound good to taxpayers, but the potential loss of revenue has some Oregonians very worried.

The “kicker,” as it is called, would lead to cutbacks in education, health care, childcare assistance and other state-funded programs, says Charles Sheketoff, executive director of the Oregon Center for Public Policy. “It’s a fiscally irresponsible policy,” he says. “The prudent course of action would be to save unanticipated revenues into a rainy day fund because there will be another recession. It’s just a matter of when.”

One new factor this biennium is Phil Knight’s $500 million fundraising challenge for Oregon Health & Science University. If major donors sell stock to make contributions, then that could boost their individual tax liability, which in turn would increase state revenues. Knight has not made any public announcements so far about joining UO’s $2 billion fundraising goal.

Back in 2007, the state spent $1.1 billion on kicker checks that “disproportionately flowed to the most well-off Oregonians,” Sheketoff says, and this happened just as the Great Recession was beginning to take its toll. The kicker has triggered eight times since it was approved by ballot measure in 1980. Corporate taxes no longer qualify for rebates, thanks to a voter-approved change in the law in 2012.

The revenue benchmark was established when the Legislature set the budget for the 2013-14 biennium. The projection was set high, but it only takes about $70 million in surplus revenue to trigger the kicker, according to the most recent state baseline revenue outlook, and that number is shrinking. Oregon’s General Fund revenue forecast for the biennium is $15.8 billion. See http://wkly.ws/1ub.

The next quarterly revenue forecast will be released to the Legislature Thursday, Nov. 13. “September’s outlook does bring us close to the kicker threshold,” State Economist Mark McMullen says. “A considerable amount of uncertainty will remain until tax returns are processed in April and May.”

A decision on the kicker will be made in September 2015 at the close of the legislative session. The kicker has been embedded in the Oregon Constitution since 1999, but an emergency vote could cancel the kicker rebates this cycle, if the political will is there. Gov. John Kitzhaber is reportedly working on reforming or eliminating the kicker, but many anti-tax Republicans support it.

If the kicker is triggered, personal income taxpayers will see a credit carried over to their next year’s tax liabilities. So the impact won’t be felt until the next biennium when state revenues could be better — or worse.